Initiative's die-hard critics want to gut commercial-property limits

SACRAMENTO  In the movie “Die Hard,” Hans Gruber and his team of “terrorists” take over a Los Angeles high rise and make a series of bogus demands — e.g., releasing prisoners from the Asian Dawn movement – designed simply to buy the time needed to break into the building’s vault.

It’s a great scene showing what it is like to negotiate with people who keep moving the goal line because their actual goals are far different from the ones they claim to be seeking.

For a recent political example, take a look at a negotiation over technical changes related to Proposition 13 — the 1978 initiative that caps property taxes at 1 percent of a property’s purchase price and limits increases to 2 percent per year. It applies to residential and commercial properties.

The proposition’s critics have long complained about a loophole in the measure — actually, a loophole in subsequent legislation implementing the proposition — that lets certain businesses pay artificially low property taxes. Proposition 13 reassesses properties at their full-market value after they are sold. Some businesses figured out a way to avoid reassessment.

As an Assembly analysis explains, “A business may avoid a reappraisal of the property … by simply structuring the acquisition in a way that prevents any of the separate purchasers from receiving more than 50 percent ownership….”

A handful of high-profile sales — Michael Dell’s 2006 purchase of the Fairmont Miramar Hotel in Santa Monica, for instance — were structured this way and still receive much criticism. Los Angeles County tried to hike the tax assessment, but the court ruled that Dell’s action was legal.

“Closing this loophole has been a goal of progressives for years because it has shifted the property tax burden onto the backs of homeowners and other individuals,” said Assemblyman Tom Ammiano, D-San Francisco, in a statement announcing a deal between Democratic-oriented groups and business organizations to support a legislative fix, AB 2372. It has passed the Assembly and is now being considered in the Senate.

At a Capitol committee in May, liberal tax reformer Lenny Goldberg praised the bill as “a step forward,” according to news reports. Rex Hime of the California Business Properties Association also lauded the effort as both men joked about their unlikely alliance.

Critics of Proposition 13 point to this reassessment loophole as an example of the system’s unfairness and say that voters should be asked to implement a “split roll” that removes many tax protections from commercial properties. Business groups and GOP politicians have not wanted to address this issue because it opens the door to tinkering with the proposition — and they oppose the tax-raising split-roll idea. This agreement might not have been the “historic agreement” that Ammiano claimed, but it was a big deal to bring these parties together.

But a week after news reports described the Assembly’s Kumbaya session, Goldberg told a Los Angeles Times columnist that AB 2372 is “just an attempt by business to paper over the issue.” In an email, Goldberg told me: “It should pick up properties that have already used the loophole. The way it is written — only going forward – the Dell loophole still stands, as do the many others that have changed ownership in the past but would not be reassessed.” So he now wants the bill to apply retroactively, which is unusually punitive. It needs to be “strengthened significantly,” he added.

Hime was shocked and saddened by Goldberg’s stance. “This cooperation works as long as one side doesn’t get greedy. Apparently, greed can’t be controlled by the tax eaters,” he said in an interview.

In other words, while the business community was negotiating over the details of an agreement to fix a technical problem, its opponents were moving the goal posts because they are eyeing a much bigger prize — an erosion of Proposition 13 tax limitations.